More or less every alternative finance platform in the world is engaged in a mad dash for scale, with speeds varying somewhat depending on the sub-sector. The need for these platforms to establish solid foundations by building out their retail investor bases means that there are an abundance of “deal sweeteners” floating around in the sector at any given time. These vary from referral rewards, to enhanced interest rates for new sign-ups. But which are some of the best deals on offer in the market at present?
Lofty gross returns are not the only lure for investors looking at the alternative finance sector. In the marketplace lending space in particular, volatility has been impressively low over the lifetime of the industry. The Liberum AltFi Returns Index UK shows the sector’s net return as fluctuating between around 4.5 and 6.5 per cent for over a decade of activity. This index is fuelled by loan-by-loan, cash flow level data from four of the UK’s largest marketplace lenders (Zopa, RateSetter, Funding Circle and MarketInvoice).
Alternative finance investors often cite low correlation with global markets as another key factor in the appeal of the asset class.
And for some, alternative finance platforms simply represent a medium for gaining exposure to hitherto inaccessible niches. The alternative finance sector, after all, spans a dizzying array of off-the-beaten-track niches, spanning everything from receivables, to renewable energy projects, to property investment.
This last vertical is the territory of both Assetz Capital and Property Partner. The former is a marketplace lending platform for small businesses. Its loans are always secured against an asset (hence the name), and often that asset will be property. Investors earn interest as loans are repaid by borrowers.
Property Partner, on the other hand, allows investors to buy a slice of the equity in a residential property, with a low barrier to entry, which can in theory be sold off at any time via the platform’s secondary market. Investors on this platform are first and foremost hoping for capital appreciation in the properties that they choose to invest in, but they also stand to earn a dividend yield on their shares, as all properties on the platform are tenanted and thus produce a rental yield.
But now that we’ve got a quick overview of each platform out of the way, onto the question at hand: what sort of deal sweeteners are on offer at these two platforms?
For Property Partner – which, bear in mind, has probably had a tougher time selling the UK residential property story to investors in the months since Brexit – the deals are especially sweet.
Refer a friend to Property Partner, have that friend invest a minimum of £1,000, and both you and the friend in question will receive £50. There is no minimum time commitment associated with this offer.
As of yesterday, Property Partner also offers customers who are using its “auto-invest” product – which automatically invests in properties with a pre-determined monthly budget – 3 per cent interest from the moment that funds are deposited until they are invested and earning income. This will effectively wipe clean the impact of any deployment drag on investor returns.
The platform tells us that it’s planning to launch “something exciting” within the coming weeks to further boost its appeal to new investors.
Investors should note that estimated returns across the platform to date stand at 8.8 per cent per annum – although these returns will not yet have been realised for the majority of investors. Roughly 3 per cent comes from rental income, and the other 5.8% from shifts in property prices. However, there are signs that the composition of these returns may be shifting, as the average income from new properties in the past few months has risen to 4 per cent, with Property Partner moving towards higher yielding properties. These properties will in general offer less in the way of capital appreciation, but the platform’s overall targeted return has remained steady at 8.8 per cent.
Peer-to-peer/marketplace lender Assetz has an enhanced interest rate campaign running on the well-known personal finance-focused website Moneysupermarket.com. Investors can use the offer to access the platform’s 30 day Access Account at a gross interest rate of 4.40 per cent.
For context, the typical gross interest rate (pre defaults and tax) that can be earned via the 30-Day Access Account is 4.25 per cent, so the Moneysupermarket offer represents a premium of around 15 bps.
It’s important to note, however, that these are capped target rates – and they could well be missed if defaults come in faster than the expected.
Investors in the 30-Day Access Account gain exposure to secured business loans. The headline target rate of 4.25 per cent varies each month but will never drop below 4 per cent, according to the platform. The account is diversified across many loans and has the coverage of the Assetz provision fund attached. There are no fees for withdrawals/access to funds after 30 days’ notice “in normal market conditions”.
The minimum investment amount is just £1, and there is no minimum time commitment associated with the enhanced interest rate offer.
As an investor, you ought to note that these sorts of short-term access accounts have endured a fair bit of criticism across the industry. The problem is that they create a mismatch in maturities between the issuing platform’s assets and liabilities. In other words, they’re matching short-term money with much longer term loans. In the language of musical chairs, it’s all well and good until the music stops.
But to be fair to Assetz, "access" products of this nature are commonplace across the marketplace lending industry, and have so far been managed well. But investors must not mistake intent for a guarantee when it comes to liquidity on marketplace lending platforms.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.